Pacific Money | Economy | Southeast Asia

Can Southeast Asia Overcome the Middle-Income Trap?

Southeast Asian nations won’t overcome the middle-income trap unless predatory elites stop undermining education and R&D.

High rates of economic growth in Southeast Asia in recent decades have led to rising income levels within the region. Yet few Southeast Asian countries have been able to move beyond middle-income status to achieve high-income status in the World Bank’s country income classifications, reflecting the fact that economic growth rates in the region have slowed since the late 1990s. 

Today, only Singapore and Brunei are classified as high-income countries. Other countries in the region are either lower-middle income countries (Cambodia, Lao PDR, Myanmar, Timor-Leste, the Philippines, Vietnam) or upper-middle income countries (Malaysia, Thailand, Indonesia). 

Moreover, some middle-income Southeast Asian countries have remained stuck at their current levels for many years. The Philippines, for instance, has been a lower-middle income country since the late 1970s while Malaysia has been an upper-middle income country since 1992. Timor-Leste, Thailand, Lao PDR and Vietnam have all been at their current levels since the late 2000s.

This situation has led some economic analysts to question whether the region is succumbing to the so-called “middle-income trap.” According to the World Bank — which coined the term — the middle-income trap is a systematic growth slowdown due to an inability “to take on the new economic structures needed to sustain high-income levels.” These structures include sound infrastructure, strong institutions, low levels of corruption, and policy settings that encourage technology transfer. But, perhaps most importantly, they include strong education and Research and Development (R&D) ecosystems capable of driving innovation. Such ecosystems are currently weak in most Southeast Asian countries.

Unfortunately, the region will find it difficult to address this education and R&D deficit because the political preconditions for change are absent. Specifically, the region lacks what political scientists Richard Doner and Ben Ross Scheidner have referred to as powerful “upgrading coalitions” — that is, coalitions of political and social groups that have an interest in improved educational and R&D systems and can drive change in these systems.

Education and R&D Ecosystems

In recent decades, Southeast Asian countries have greatly improved access to education, including for the poor. However, this has not been accompanied by significant improvement in educational quality in much of the region.

One sign of this is the region’s poor performance in international standardized assessments of school-level student achievement such as PISA, PIRLS and TIMSS. Wealthy Singapore and Brunei have fared well in these assessments, as has Vietnam. But other participating middle-income countries — the Philippines, Indonesia, Cambodia, Thailand, and Malaysia — have generally clustered towards the bottom of these league tables. 

The lack of education quality is also reflected in global university rankings. Singaporean universities — particularly the National University of Singapore and Nanyang Technological University — rate among the top universities in the world. But only eight Southeast Asian universities appear in the top 500 in the most recent Times Higher Education World University rankings. One of these is Universiti Brunei Darussalam while two are from Singapore and five are from Malaysia. 

Finally, the region’s R&D systems lack dynamism. According to the Global Innovation Index (GII), the region as-a-whole performs poorly in all seven areas covered: institutions, human capital and research, infrastructure, market sophistication, business sophistication, creative outputs, and knowledge and technology outputs. 

Unfortunately, there is no easy fix to these weaknesses, in no small part due to the politics involved.

The Politics of the Trap

The ascendance of predatory political, bureaucratic and corporate elites stymies reform. Their primary interests lie in the status quo — the extraction of rents from natural resources sectors, the exploitation of low-wage and low-skilled........

© The Diplomat